New York University Skip to Content Skip to Search Skip to Navigation Skip to Sub Navigation

Award-Winning Paper Evaluates Downside Risk in International Financial Markets

September 17, 2013

Foreign exchange is seen as a potentially risky investment and there has been ongoing debate on whether currency returns can be explained by their association with risk factors. In the paper, “Conditional Risk Premia in Currency Markets and Other Asset Classes,” Matteo Maggiori, assistant professor of finance at the Stern School of Business and affiliated assistant professor in NYU’s Department of Economics, and his co-authors, Martin Lettau and Michael Weber from the University of California Berkeley Haas School of Business, found that the cross section of currency returns can be explained by a risk model in which investors are concerned about downside risk.

According to the researchers, the downside risk capital asset-pricing model (DR-CAPM) can price the cross section of currency returns. High-yield currencies earn higher excess returns than low-yield currencies because their co-movement with aggregate market returns is stronger conditional on bad market returns. They found that similar patterns hold in other common asset classes such as equities and equity options, commodities, and sovereign bonds. The DR-CAPM offers a unified risk view of all these asset classes. Such unified treatment of investment across asset classes had proven elusive in the academic literature and has relevant implications for the theory and practice of investment.


The researchers were presented with the second annual AQR Insight Award for this paper in May 2013. The $100,000 award, sponsored by AQR Capital Management, recognizes unpublished papers that provide significant new practical insights to institutional investors.

Type: Article

Award-Winning Paper Evaluates Downside Risk in International Financial Markets

Search News



NYU In the News

NYU Offers Financial Aid to Undocumented Students

The Wall Street Journal reported that NYU will begin offering scholarship aid to undocumented students for the school year beginning next September.

NYU Adopts Lean LaunchPad Program to Teach Entrepreneurship

Startup guru Steve Blank, in a Huffington Post blog, described how NYU adopted the Lean LaunchPad model to teach entrepreneurship to students and faculty at NYU.

Biology Professor Jane Carlton Examines Wastewater for the City’s Microbiome

The New York Times’ Science Times column “Well” profiled Biology Professor Jane Carlton and her research project to sequence microbiome of New York City by examining wastewater samples.

Steinhardt Professors Use a Play as Therapy

The New York Times wrote about a play written by Steinhardt Music Professor Robert Landy about the relationship between Adjunct Professor Cecilia Dintino, a clinical psychologist in the Drama Therapy Program, and a patient, former Broadway actress Jill Powell.

NYU Public Health Experts Urge Strengthening Local Health Systems to Combat Ebola

Dean Cheryl Healton of the Global Institute of Public Health and Public Health Professor Christopher Dickey wrote an op-ed in the Huffington Post saying international health agencies need to strengthen their presence in countries at the local level to prevent future ebola outbreaks.

NYU Footer